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For starters, both can be highly toxic. Collateralized debt obligations based on subprime mortgages have brought America’s economy to its knees. In China, dairy tainted with melamine was used to make infant formula that is now blamed for sickening 53,000 infants and killing at least four.

In addition, both can wind up in unexpected places, and do serious harm to consumers. Some of those exotic debt instruments wound up in very conservative, “ultra-short” US bond mutual funds, sparking declines, and on the balance sheets of far-off European and Asian financial institutions–threatening the same kinds of illnesses they caused in the United States, where they have decimated Wall Street.

The Chinese dairy products that sickened so many infants have turned up in Pizza Hut cheese in Taiwan, cookies in Macao, White Rabbit Creamy Candy and Cadbury chocolate all around Asia–even in instant coffee and tea in the United States.

The hopeful news in all this is that in the process of creating so much toxicity both the distressed loans and the distressed food are teaching us important lessons about the limits of scale and regulation that support the massive globalization of the last decade. We are learning that regulators have lost the ability, if they ever had it, to truly monitor the extent of the danger. In both the financial and food arenas, no one–including regulators–has been able to give us a good read on the extent of the problem.

Treasury Secretary Henry Paulson came up with the idea of a $700 billion bailout program for financial institutions holding toxic debt not because he knows that the problem is $700 billion in size but because he can only estimate the scale of the problem as being between $500 million and $1 trillion. The actual amount could be much higher or lower, and will presumably become clearer once the institutions begin selling their bad loans to the US government.

Similarly, no one seems to know the extent of contamination from the tainted Chinese milk that infiltrated so many products sent off to so many places around the world. The US Food and Drug Administration reported last week that California distributors had recalled White Rabbit Candy and Mr. Brown coffee mixes being sold in the United States because of suspected contamination with melamine, a synthetic protein used in manufacturing, that was added to the milk.

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Yet the blogger known as Eddie, the Haphazard Gourmet Girl, reports finding contaminated products on food store shelves, such as in Los Angeles’s Chinatown. This prompted Bill Marler, a Seattle lawyer who specializes in food contamination litigation, to angrily observe this week: “As our government spends [$700 billion] on Wall Street, I guess it simply does not have the time nor the money to protect us from an industrial chemical blamed for sickening thousands of infants in China? Go figure.”

This isn’t the first time food regulators have been caught off guard by contaminated Chinese food products. Thousands of cats and dogs were sickened or killed by melamine in pet foods from China in early 2007. Even journalists have thrown up their hands trying to track contaminated Chinese products. Last year, the Wall Street Journaladmitted in a front-page article that it couldn’t track ginger contaminated with a pesticide back to the farms in China where it had been grown.

Nor is there a lot of hope that new regulations will fix the problem. For example, one new American rule designed to inform consumers about their foods’ source is the US Department of Agriculture’s Country of Origin Labeling (COOL) regulations that went into effect October 1, whereby all beef, pork, lamb, goat, chicken, vegetables and other commodities are to be labeled according to where they come from. Thus, consumers who want to limit themselves to meat and vegetables from particular countries–say, the United States or Canada–can more easily do so.

But according to Gary Cox, a lawyer with the Farm-to-Consumer Legal Defense Fund, the rules aren’t comprehensive enough to do the intended job. “Foods that are ‘processed’ are not subject to these COOL requirements,” he says. “For example, chicken nuggets, barbecued meatballs, fish sticks, or any breaded frozen meats (just to name a few) are exempt and we’ll never know for sure just exactly where those meat products come from. So it’s important to know where the meat comes from but it’s not important to know where the meat comes from once it’s been processed? Ridiculous.”

We are also learning that, as disenchanted as people might feel over the actions, or inactions, of regulators, actually getting them to adjust their actions is much more difficult than we often appreciate. We saw a vivid example of voter anger and exasperation with the regulators in the US House of Representatives’ rejection last week of the $700 billion bailout legislation. Representatives reported having been inundated by voters opposing the bailout, reflecting not only anger with Wall Street’s excesses but, by implication, with the regulators’ handling of the situation.

The representatives are all up for re-election this year, and apparently those in the tightest races were most sensitive to voter anger on the bailout. With only one-third of senators up for election, these officials were less mindful of the voter outrage, and the president, a lame duck, could afford to ignore it completely.

On the food side, a similar, albeit more narrowly focused, situation just played out in California. There, consumers were angered about what they felt was excessive regulation of the state’s two small dairies that produce unpasteurized milk for about 30,000 residents. First, they backed the dairies when they challenged the regulators in court last winter. After initially siding with the dairies by imposing a temporary restraining order against the regulators, a judge told the dairies the matter should be settled with new legislation.

So the dairies last spring sought legislation to ease the regulatory burden, while retaining important safety monitoring. With thousands of consumers phoning and sending e-mails to their elected officials, the new legislation passed by near-unanimous votes in both the California Senate and Assembly.

But the idea of regulatory flexibility seems anathema to supporters of more effective food regulation. The contamination lawyer I quoted previously, Bill Marler, railed against the new legislation as “a black hole of regulation,” while admitting it represented “an ambitious and well-meaning attempt to make California’s dairy products safer.”

And last week, the effort ran into the brick wall of executive resistance. Gov. Arnold Schwarzenegger took the advice of regulators and people like Marler and vetoed the legislation. He added insult to injury in his veto message by condemning the dairies’ “lobbying techniques, public relations campaign, and legal maneuvering in the courts.”

Now that regulators are free to impose the old inflexible regulations, the effect of the veto could be to drive the two small dairies out of business. Perhaps the regulators want to explore bringing dairy products in from China.

In today’s growth-at-any-cost global economy, it’s clear that not all kinds of products can be effectively mass-produced and distributed like widgets or computers. Maybe lenders should know the city or even the neighborhood where the home mortgages they are backing actually originate. Certainly you don’t have to be the most discerning consumer to appreciate that locally produced food products invariably taste better. Beyond that, it might make sense to pay attention when a country that has little history with a particular perishable food product–as China does with dairy–begins exporting that product in huge quantities.

The bigger challenge is convincing our legislators, judges and executives to push the regulators to take seriously such basic realities.

David E. GumpertDavid E. Gumpert is a writer specializing in health and business. He covers nutrition and food issues at his blog.